June 2022 - Center for Retirement Research

Legacy Debt in Public Pensions: A New Approach

Jean-Pierre Aubry

SLP#84

The brief’s key findings are:

• The inclusion of “legacy debt” ・unfunded liabilities from long ago ・with current liabilities impedes effective pension policy.
• A new approach would separate legacy debt from other unfunded liabilities in order to:
  • spread the legacy cost over multiple generations; and
  • properly identify fixed vs. variable costs.
• It would also use the municipal bond yield ・rather than the assumed return on assets ・to calculate liabilities and required contributions.
• This approach, by properly allocating costs, would improve intergenerational fairness, government resource decisions, and public credibility.